Wynn Resorts $135 Million University of Macau Donation The Subject Of SEC Scrutiny

In May 2011, Wynn Resorts donated $135 million to the University of Macau (see here for the University’s press release).

In an 8-K filing yesterday, Wynn Resorts Ltd. disclosed as follows.

“As previously disclosed, in May 2011, Wynn Macau, a majority owned subsidiary of Wynn Resorts, Limited (the “Company”), made a commitment to the University of Macau Development Foundation in support of the new Asia-Pacific Academy of Economics and Management. This contribution consists of a $25 million payment made in May 2011 and a commitment for additional donations of $10 million each year for the calendar years 2012 through 2022 inclusive. The pledge was consistent with the Company’s longstanding practice of providing philanthropic support for deserving institutions in the markets in which it operates. The pledge was made following an extensive analysis which concluded that the gift was made in accordance with all applicable laws. The pledge was considered by the Boards of Directors of both the Company and Wynn Macau and approved by 15 of the 16 directors who serve on those boards. The sole dissenting vote was Mr. Kazuo Okada whose stated objection was to the length of time over which the donation would occur, not its propriety.

Also as previously disclosed, Mr. Okada commenced litigation on January 11, 2012 [see here for the complaint], in Nevada seeking to compel the Company to produce information relating to the donation to the University of Macau, among other things.

On February 8, 2012, following Mr. Okada’s lawsuit, the Company received a letter from the Salt Lake Regional Office of the U.S. Securities and Exchange Commission (“SEC”) requesting that, in connection with an informal inquiry by the SEC, the Company preserve information relating to the donation to the University of Macau, any donations by the Company to any other educational charitable institutions, including the University of Macau Development Foundation, and the Company’s casino or concession gaming licenses or renewals in Macau. The Company intends to fully comply with the SEC’s request.”

While the Wynn’s disclosure does not specifically mention the Foreign Corrupt Practices Act, given that the company’s disclosure of the SEC inquiry appears to link the donation to the “Company’s casino or concession gaming licenses or renewals in Macau” it is likely that the SEC’s interest in the donation is based, at least in part, on the FCPA. As Okada alleges in his complaint “Wynn Macau’s gaming concession expires in June 2022″ – the last year of Wynn’s donation committment. According to Okada’s complaint “he objected to this donation, which appears to be unprecedented in the annals of the University” [which he alleges sits on land owned by the government].

According to Wynn’s most recent quarterly filing, the company’s Macau operations constitute approximately 75% of the company’s overall revenue. Macau is also a focus of the company’s expansion plans.

Charitable donations are not in and of themselves prohibited by the FCPA’s anti-bribery provisions. For instance, see here for a 2009 FCPA Opinion Procedure Release. Yet, such donations do carry FCPA risk and, as anyone who has reviewed DOJ NPAs and DPAs know, FCPA best practices is to have adequate controls as to charitable donations (see here for the recent Aon NPA – specifically Appendix B).

Charitable donations hit the radars of FCPA practitioners as a result of a 2004 SEC FCPA enforcement action against Schering-Plough (see here). In the enforcement action, the SEC alleged that Schering-Plough violated the FCPA when its wholly-owned Polish subsidiary (“S-P Poland”) improperly recorded a bona fide charitable donation to a Polish foundation that restored castles where the founder/president of the foundation was also a director of a government health fund that provided money to hospitals throughout Poland for the purchase of pharmaceutical products. Although the SEC and Schering-Plough ultimately resolved the matter based only on violations of the FCPA books and records and internal control provisions, the enforcement action is commonly viewed as standing for the proposition that “payments to a bona fide charity could violate the FCPA if made to influence the actions of a government official” (see this client alert from Wilmer Cutler).

Wynn is not the only casino under scrutiny for Macau conduct. Las Vegas Sands has also been under FCPA scrutiny concerning its operations in Macau. In a question out of left-field, during the June 2011 FCPA hearing in the House, Representative Quayle (R-AZ) asked the DOJ whether it “looked into the gambling practices in Macau and if there is any illegal activity occurring in that arena?” (See here page 71).

Like Wynn’s Macau inquiry, the Las Vegas Sands inquiry also seems to have started with a civil lawsuit. See here for the prior post.